In an unprecedented announcement, Amazon has released a statement saying it will relaxes the restrictions on its third-party vendors, enabling them to sell elsewhere the same products at a cheaper cost.
While no explanation has been officially given by its strategy team, it seems that the Internet giant has been eyeing for new marketplace opportunities.
And while media were wondering and pressuring the platform to understand what happened, the company simply decided to step back and back track on its decisions.
Not only this disrupted Amazon’s share holders confidence, but it also hindered the confidence of vendors, who have declared in several media that they will rely less on it for their business.
How does the business model work?
Historically being the first online book store, Amazon is now a marketplace with multi-layer levels, that are sometimes hard to understand for all users.
With dozens of startups bought, Amazon has a culture of staying confidential on how to use its platform; experts confirm that this is a part of the strategy for the users to stay longer on the website… and buy more.
A few years ago Amazon launched a system for third-party vendors to buy their products online. To compete with Etsy, Ebay and other online marketplaces, Amazon Marketplace has shown impressive numbers in a short amount of time.
For the year 2018 alone, Amazon and its third-party vendors have sold $189 billion of retail goods. But to be selected by Amazon to sell your products, you have to be good. First of, because Amazon is paying upfront for all the ware, regardless of the users’ reaction.
However, if you are a vendor and that you are opening a marketplace page, the company will not pay upfront for your goods and you will be in charge to sell them to retail clients one by one. In other words, the work is tedious and less profitable for artisans and local makers.
Get rid of low performers
Needless to say that when the digital giant emailed its vendor Vendor Central to ask to halt orders from tens of thousands of retailers, the news came as a surprise.
“Amazon wants to groom the number of accounts it’s buying from directly. Setting up a vendor account on Amazon has been easy in the past, with no requirement to authorize the brand in Vendor Central,” analyzed Ryan Craver, the CEO of Commerce Canal, a retail and e-commerce agency.
— Manuel Diaz (@manueldiaz) March 7, 2019
Indeed, the subtext for many vendors was that Amazon is now starting to quantify its vendors too, and push the lowest performers to its marketplace, where there is no pre-order necessary from the company.
“We’re going to continue to see more of that grooming on Amazon’s part, and more pushing vendors to the marketplace”, added Craver for Digiday.
Moreover, the giant retailer said that it would give more power to retailers who would like to remove counterfeit products on their page.
Indeed, over the last weekend, thousands of vendors received a letter saying they were eligible to “Brand Registry”, encouraging vendors who were bared from the original online website to open a marketplace account.
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Streamline the retail processes
According to Todd Bowman, senior director of Amazon, the company is planning to “streamline the retail processes that they have.”
In other words, the company is trying to track with new softwares what are the most popular products and brands, so it can improve more easily its profitability.
— Ability Commerce (@abilitycommerce) March 12, 2019
But the risk is to become a unique seller-system, which is a risk that costed Ebay and other online stores their falls. Part of the reason why retailers were happy about it is that Amazon will no longer cap anyone’s prices.
A freedom of pricing that might fit the smallest retailers, who are looking to improve their margins between wholesale and retail prices. A win-win situation, as the Internet giant reports that it is more of a profitable situation when retailers sell through marketplace.
As Bloomberg’s Spencer Soper “revenue providing services to [marketplace] merchants is growing at double the pace of revenue from [Amazon’s] online store.”
However, numbers still look very good for the Internet giant; it currently owns half of the online purchases online in the United States and is the website that represent the broadest range of diversity within its own clientele.